How to Renegotiate the Lease for Your Business

Jacob Orosz Portrait
by Jacob Orosz (President of Morgan & Westfield)

Executive Summary

Just as real estate prices rise and fall, so can rental rates.

Have you tried negotiating your rent with your landlord to no success?

Is your current rental amount above market rates? Do you own an unprofitable business in which it would not be feasible to continue operations without a concession from the landlord?

If you’ve answered any or all of those questions in the affirmative, read on to learn what you can do to improve your chances of success. Spoiler alert: Everything’s negotiable.

Reasons the Landlord May Lower Your Rent

  • If the landlord doesn’t lower your rent, you may be forced into bankruptcy.
  • The business is break-even or barely profitable.
  • The landlord believes it may be difficult to replace you as a tenant.
  • Your rental rate is above the current market rental rates.

Prerequisites to Negotiating a Lower Rental Amount

  • You have an excellent working relationship with the landlord and have been a long-term tenant.
  • The person you are dealing with has the authority to make the reduction.
  • The landlord is not under pressure from their financing source and is current with their payments.
  • You have approached the landlord with a specific proposal on the amount of reduction.
  • You have a plan of action to reinvest the savings back into the business to increase the revenue and profitability of the business.

Reasons the Landlord May Not Lower Your Rent

  • You are wealthy or have significant savings to keep the business open, and the landlord knows it.
  • Your business is difficult to relocate, leaving you few options.
  • The space is highly sought after, and you could easily be replaced as a tenant.
  • Your business is highly profitable.
  • Your sales have not significantly decreased in recent years.
  • You have not presented the landlord with a specific game plan for improvement.

How do I Approach My Landlord and Try to Reduce My Rent?

You should approach the landlord using common business sense in a straightforward, no-nonsense manner. Explain in writing that the business can’t continue without the landlord’s help. Your presentation should include past years’ financial statements, a current financial statement, a personal financial statement or balance sheet, a specific proposal, and a short business plan.

You should approach the landlord tactfully, explain your case, and leave them the documents to review and consider. If they come back with a “no,” you should respond with a new proposal. Don’t take no for an answer until you have exhausted all your options.

By How Much Can I Reduce My Rent?

The amount of the reduction depends on how the numbers work and on the landlord’s financial position. We have seen reductions from as low as 10% to as high as 50%. The bottom line is that it’s a negotiation between you and the landlord, and the numbers must make sense.

What is the Difference Between a Deferral and an Abatement?

A deferral means you must pay back the reduction — as with a loan. An abatement means that you do not have to pay the reduction back. Most of the time, we see landlords proposing a deferral. You should explain to the landlord that while a deferral sounds great in theory, it will only cause problems later on.

With a deferral, later on, when you expect the business to be profitable, you will be forced to begin paying back the money and will again be in a low to negative cash flow situation. This likely doesn’t make sense for you in the long term, so you should always push for an abatement.

How Long Do the Negotiations Take?

This depends on the landlord. If they are a large, national, publicly traded company with layers of management, you can expect the process to take one to three months. If it is a small, local individual landlord, you may be able to work out a solution in a few weeks.

How Long Will the Landlord Reduce the Rent?

The landlord will likely make the reduction for less than a year, probably about six months. At the end of the period, you should simply approach the landlord again and ask for an extension. Because economic situations can be difficult to predict, it’s unlikely the landlord will commit to an extended period.